ECB Press Conference: Lagarde comments on policy outlook after cutting key rate by 25 bps

Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to lower the benchmark interest rate by 25 basis points at the September policy meeting and responds to questions from the press.

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ECB press conference key quotes

"The recovery if facing headwinds, based on surveys."

"Recovery is expected to strengthen."

"Fading monetary policy restriction should support the economy."

"The labor market is resilient."

"Surveys point to further moderation in demand for labor."

"Negotiated wage growth will remain high and volatile for the rest of 2024."

"Overall labor cost growth is moderating."

"Unit labor costs expected to continue to decline."

"Risks to growth are skewed to the downside."

"Wages, profits, trade tensions potential upside risks for inflation."

"We have reinforced confidence in solidity, robustness of projections."

"Declining path for rates is pretty obvious."

"September will deliver low inflation reading."

"Inflation to rise again in Q4."

"Relatively short time to October meeting."

"No commitment of any kind about October."

"We need to be attentive to risk of below target inflation."

"Services inflation requires attention, monitoring."

"Expecting services inflation to decline in 2025."

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This section below was published at 12:15 GMT to cover the European Central Bank's policy statement and the immediate market reaction.

The European Central Bank (ECB) announced on Thursday that it lowered the interest rate on the marginal lending facility to 3.9% from 4.5% and the deposit facility, also known as the benchmark interest rate, by 25 basis points (bps) to 3.5% as expected. The ECB also cut the interest rate on the main refinancing operations by 60 bps to 3.65%.

In its monetary policy statement, the ECB noted that it is now appropriate to take another step in moderating the degree of monetary policy restriction, based on the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.

ECB policy statement key takeaways

"Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner."

"Inflation is expected to rise again in the latter part of this year."

"Will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim."

"Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction."

"Domestic inflation remains high as wages are still rising at an elevated pace."

"In particular, its interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission."

"Labour cost pressures are moderating, and profits are partially buffering the impact of higher wages on inflation."

"Governing Council is not pre-committing to a particular rate path."

"Financing conditions remain restrictive, and economic activity is still subdued."

ECB projections

"Staff project that the economy will grow by 0.8% in 2024, rising to 1.3% in 2025 and 1.5% in 2026."

"Inflation forecast: 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026, as in the June projections."

"New core inflation forecast: 2.3% in 2025 and 2.0% in 2026."

Market reaction to ECB policy decisions

The ECB's policy announcements failed to trigger a noticeable reaction in the Euro. At the time of press, EUR/USD was trading virtually unchanged on the day at 1.1015.

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This section below was published as a preview of the European Central Bank's (ECB) policy decisions at 07:00 GMT.

• The European Central Bank is expected to cut key rates by 25 bps at the September policy meeting.
• ECB President Christine Lagarde’s presser and updated economic forecasts will be closely scrutinized for fresh policy cues.
• The ECB policy announcements are set to inject volatility around the EUR/USD pair.

The European Central Bank (ECB) interest rate decision will be announced alongside the publication of the staff’s updated economic projections following the September monetary policy meeting due on Thursday at 12:15 GMT.

ECB President Christine Lagarde's press conference will follow, beginning at 12:45 GMT, where she will deliver the prepared statement on monetary policy and respond to media questions. The ECB announcements are likely to rock the Euro (EUR) against the US Dollar (USD).

What to expect from the European Central Bank interest rate decision?

After standing pat on interest rates in July, the ECB is widely expected to reduce benchmark interest rate, the deposit facility, by 25 basis points (bps) to 3.50%. As for the marginal lending facility and the main refinancing operations rate, the consensus has changed to a 60-basis-points cut to 3.9% and 3.65%, respectively. This comes after the ECB's review of the operational framework, which stated that the spread between the deposit rate and the main refinancing operations rate would be reduced to 15 basis points as from September 18.

In June’s post-policy meeting press conference, ECB President Christine Lagarde said that "we are determined not to have a predetermined rate path. September decision is wide open." "September projections, plus other data, will be taken into account,” Lagarde added.

The accounts of the July ECB meeting showed that September “was widely seen as a good time to re-evaluate” the level of monetary policy restriction.

Since the July meeting, the Eurozone inflation cooled off significantly, returning closer to the central bank’s 2.0% target.

Eurostat's preliminary data showed on August 30 that the Harmonised Index Of Consumer Prices (HICP) across the currency bloc rose 2.2% over the year in August, marking the lowest annual inflation rate since July 2021. Meanwhile, the Euro area negotiated wages increased at an annual pace of 3.55% in Q2 2024 after rising 4.74% in the first quarter of this year.

The ECB accounts combined with a sharp decline in the pace of wage growth, cooling inflation and weakening Euro area business activity indicate that a rate reduction is a given on Thursday. 

Therefore, the ECB’s communication on the path forward and its outlook on inflation and growth will hold the key for the market’s pricing of the future rate cuts and the Euro’s (EUR) next directional move.

Previewing the ECB meeting, TD Securities analysts said: “A 25bps cut is a near-certainty. What matters will be guidance beyond September, where there's strong pressure on both sides. Wage growth and services inflation remain strong (emboldening the hawks), while growth indicators are flagging softer (emboldening the doves).” “Lagarde is unlikely to rule out an October cut, but quarterly cuts are likely more consistent with the new projections,” the analysts added.

How could the ECB meeting impact EUR/USD?

Heading into the ECB showdown, the Euro is clinging to recovery gains, with EUR/USD reversing from monthly lows of 1.1020. The pair’s fate hinges on the ECB’s outlook on interest rates beyond September.

ECB President Christine Lagarde is likely to stick to the bank’s data-dependent stance and refrain from giving a certain response on the next rate cut move. Unless the policy statement, or Lagarde, hints at more rate reduction coming in the final quarter of this year, the EUR/USD recovery is seen gathering further traction.

Conversely, the Euro could come under renewed selling pressure if the staff projections show downward revisions to both the inflation and economic growth outlook. Meanwhile, Lagarde’s increased confidence in the disinflation progress could also revive Euro sellers. These factors could double down on the dovish expectations, fuelling the resumption of the recent EUR/USD downtrend.

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD:

“EUR/USD maintains its bearish streak, especially after the Relative Strength Index (RSI) indicator returned below the 50 level on the daily chart. If sellers flex their muscles, the immediate support of the 50-day SMA at 1.0964 will be tested. Further south, the pair could aim for the strong demand area near 1.0870, where the 100-day SMA and the 200-day SMA coincide.”

“On the upside, the pair needs to find acceptance above the 21-day Simple Moving Average (SMA) at 1.1082 on a daily closing basis to sustain the recovery toward the September 6 high of 1.1155, above which the 1.1200 psychological level will challenge bearish commitments.”